But that does not mean the risk of a market shock has vanished, some experts say – quite the contrary.If the Fed continues to ‘taper’ as planned, the US will have ended its easing programme completely after the summer.At a recent press meeting in Amsterdam, Asoka Wöhrmann, co-CIO at Deutsche Asset & Wealth Management, said: “This autumn, the Americans will be all tapered out. Then the market will ask ‘what’s next?’“Quite possibly, the next step will be an interest rate rise. That would actually be the first ‘normal’ monetary action the Fed would take, but even so, it’s something the market is not accustomed to anymore, so this will once again trigger a panic reaction in the markets.”He added: “This will lead to a steepening of the front end of the curve and have a huge impact on the dollar. There will be a lot of volatility in the fall of 2014.”In addition, he expects an uncoupling of European Central Bank (ECB) and Fed strategies.“The ECB will have to step up its accommodative measures even as the Fed tapers its quantitative easing programme,” Wöhrmann said. He fully believes the ECB can and will take the necessary steps.“The credit crunch in Europe’s periphery will be the single most important hurdle to European growth in the next two years,” he said.“The ECB has no choice but to take action – it is crucial to revitalise small and mid caps in peripheral Europe.”The ECB has several means at its disposal other than ‘classic’ monetary easing, which would not work because of the divergence within the European Union between the periphery and the core countries.“The ECB might buy corporate bonds or further relax collateral – this will happen,” Wöhrmann said.“And if the euro should rise above $1.40, then the ECB will consider a negative overnight rate.”Wöhrmann sees the intended European banking union as a landmark step.“All the rest will follow,” he said.But Dominic Rossi, CIO at Fidelity, is not so sure.“I would add that the ECB is in the midst of a policy error,” he said.“They should be much more accommodative already. One clear sign of that is the euro – the currency needs to fall.“I take issue with the ECB failure to act. They could do more, they should do more, and they should do it now.”According to Rossi, “there is no guarantee that, in six months’ time, the ECB will not continue to make the same mistakes”.Wöhrmann is a bit milder in his judgment.“Because of the divergence within the monetary union, the ECB is in a very difficult position, indeed,” he said.“Conventional monetary policy will not work, as any accommodative measures aimed at aiding the periphery will anger the stronger core countries, particularly Germany.“Really, the ECB’s only option is to adopt a form of ‘QE light.”The ECB might leverage instruments including ABS, corporate bonds and covered bonds to revitalise small and mid-cap companies in the periphery.“The ECB must do more, and I have no doubt they will,” Wöhrmann said.“Europe cannot afford the social unrest that would surely result if they don’t.” Once the US Federal Reserve is all “tapered out”, the market will be asking what comes next, industry experts have warned.The Fed’s announcement last year that the time had come to phase out quantitative easing triggered a collective knee-jerk reaction in the markets.The panic has since subsided, and investors are getting used to the idea of ‘tapering’, as the Fed has dubbed the gradual withdrawal of its unprecedented accommodative measures.In a recent statement, Alan Brown, senior adviser at Schroders, said: “With each new round of tapering, the effect on the market further diminishes.”
Denmark’s ATP is investing DKK500m (€67m) in energy trading firm NEAS Energy in an equity and debt deal the statutory pension fund believes gives it exposure to a little-understood sector with potential for substantial growth.The investment is being made in conjunction with private equity firm Via Venture Partners, which ATP has invested through before, and in which it is the sole investor.The deal consists of the acquisition of a minority stake in NEAS Energy as well as a debt injection, adding up to a total investment of DKK500m.A consortium consisting of Via Venture Partners and ATP will take ownership of around 30% of NEAS Energy for an equity investment of DKK250m, with the former taking approximately 18% and the latter around 12%, and ATP will provide a loan of DKK250m. NEAS Energy – which describes itself as an energy trading and asset management company for the physical and financial management of power, gas and related commodities on energy markets – is based in Aalborg in Denmark but operates internationally.Ulrik Dan Weuder, head of ATP’s infrastructure investments, said: “Co-investing with Via Venture Partners is one way of providing ATP access to attractive direct company investments, as it was also the case in the KMD and Nets investments.”He said ATP was interested in both debt and equity investments in companies it expected to produce good returns to its members.For its part, NEAS Energy said the investment would enable it to continue its international expansion.Bo Lynge Rydahl, chief executive of the company, said: “We see the investment of Via Venture Partners and ATP as an endorsement of our company and the future potential of our business.”Dan Weuder said he was excited about the potential for growth among investments in Europe’s rapidly changing electricity markets.“The European electricity market is in a state of such change right now, there are so many things going on, with a whole new industry of traders being created,” he told IPE.He said the market was now very fragmented following the emergence of so many different sources of energy to be used to supply power. These alternative energy sources, and the uncertainty about when they will be available to the transmission market, has created a new sector of brokers and other operators that need new skills such as weather forecasting.This new sector was needed to manage that power supply and optimise it, Dan Weuder said.“As investors, we need to respond to all this change, and it’s an area where you can really get something wrong if you don’t understand what’s going on,” he said.He said ATP was pleased to work with Via Ventures on the deal not least because the firm “really knows” the companies in which it invests.“It gives us a special protection,” he said. “We do our due diligence, but they are the ones that do most of the work.”On the finance structure of the deal, Dan Weuder said ATP was keen on investments where there was equity including board representation as well as debt.NEAS Energy has more than 200 staff in Aalborg, Stockholm, Hamburg and London and operates in 18 power and gas markets in Europe.It has a portfolio of 6,668MW of installed capacity under management from customers in renewable and thermal energy generation, the investors said.The final transaction is expected to be finalised in the first half of this year, pending approval from the relevant authorities, Via Venture Partners said.Carnegie Investment Bank and Bruun & Hjejle advised NEAS Energy in the deal, as well as its owners, while FIH Partners and Kromann Reumert advised Via Venture Partners.
IPE understands PIP investors accounts for the majority of the UK investment. The PIP, set up by the UK National Association of Pension Funds (NAPF) to channel investment into UK infrastructure, declined to comment. In addition to Dalmore, the consortium included Allianz Capital Partners, Amber Infrastructure Group, DIF and Swiss Life Asset Managers.The PIP’s involvement in Dalmore’s TTT fund represents its first foray into UK development infrastructure after focusing on PPP equity and solar investments since the first investment in 2014.Seven founding pension fund investors, including the Pension Protection Fund (PPF), the Railways Pension Scheme and the Strathclyde and West Midlands local government funds, originally backed the platform in 2012. Five investors allocated capital to Dalmore’s PPP fund.The PIP has since added a solar fund from Aviva Investors and is seeking authorisation from the UK’s financial regulator to become a standalone investor.In February, PIP chief executive Mike Weston said he expected the platform to grow and be able to invest in large-scale UK projects – and acknowledged discussions around the TTT had taken place.The overall vision for the PIP is to hold a mixture of direct and indirect investments, using external partners initially before developing in-house capabilities.The TTT project will create a new sewer and construct a 25km tunnel underneath London’s River Thames, with completion due by 2023.The consortium said it would benefit from revenues as soon as construction began next year.Once operational, the project will be controlled by quasi-government regulator OFWAT.The group beat 11 other bidders in a tender process managed by Thames Water, the London water provider. An asset manager partnered with the UK’s Pensions Infrastructure Platform (PIP) has helped form a winning consortium on a large-scale London infrastructure project.Dalmore Capital, the first asset manager to invest PIP money via a series of public/private partnership (PPP) equity investments, is part of the Bazalgette Consortium that will finance the £4.2bn (€5.9bn) Thames Tideway Tunnel (TTT) – an upgrade of London’s ageing sewer network.Earlier this month, PIP investors made a £370m co-investment alongside Dalmore, in addition to the £500m in Dalmore’s PPP Equity PiP fund – taking total commitments associated with the platform to more than £1bn.Dalmore said it secured £440m of commitments for its TTT fund from a number of UK pension funds and a small number of European investors.
The Dutch Pensions Federation, however, argued that pension funds would be even more susceptible to interest-rate movements after the UFR cut, which it likened to “opening a window during a storm”.It said the regulator’s decision to opt for a discount rate with an increased focus on financial markets was “illogical”, particularly when the European Central Bank’s quantitative easing policy was having such a strong impact on interest rates.Klijnsma, however, has made clear that the government is not looking to mitigate the effects of low rates.In a letter to Parliament, she said the government believed it was important that the interest rates applied by pension funds be “designed as accurately as possible”.The state secretary’s letter accompanied a report on the impact of the nFTK, the low-interest-rate environment and the new UFR on pension funds’ financial positions.One of the conclusions of the report was that the reduced UFR would lead to a 6% increase in the cost-covering pension contribution.However, the actual increase in premiums is expected to be limited to 1% next year, as many pension funds already charge a contribution above the cost-covering level.The report also concludes that the UFR’s impact on premiums will vary widely.For most workers, there will be no changes, it say.But it suggest that, for a small group of participants – particularly at schemes with a contribution that covers less than 80% of actual costs – increases could exceed 30%. The Dutch Pensions Federation has warned that the reduction of the ultimate forward rate (UFR) for discounting pension liabilities will serve to heighten volatility within the new financial assessment framework (nFTK). The industry organisation said the lower rate was “at odds” with one of the key stated aims of the nFTK – increasing stability – and that it wanted to discuss the matter with Parliament and Jetta Klijnsma, state secretary for Social Affairs.Previously this summer, the Dutch pensions regulator (DNB) caught many in the industry by surprise when it cut the UFR for pension funds from 4.2% to 3.3%.At the time, it described the lower rate as being more “realistic, balanced, sustainable and fair”.
Seven of the largest pension and insurance providers in Switzerland have joined forces to create an association for sustainable and responsible investment.The SVVK-ASIR was founded to help its members fulfil their “fiduciary duties” of including ESG criteria in their investments.The first part of the acronym stands for the German name Schweizer Verein für verantwortungsbewusste Kapitalanlagen, the second for the French Association Suisse pour des investissements responsables.The founding members include the first-pillar fund AHV, the public pension fund Publica, the pension fund for the canton of Zurich BVK, the pension plan of telecommunications company Swisscom (ComPlan), the pension fund of the postal service (PKPost), the pension fund of federal railways SBB (PKSBB) and the accident insurance fund Suva. Together, they manage more than CHF150bn (€122bn) in assets.Patrick Uelfeti, deputy CIO at Publica, was named president of the association, which is still looking for a managing director.Uelfeti said the SVVK-ASIR was founded as a service provider to suit the “individual needs” of its founding members.The new organisation will screen the portfolios of its members based on defined criteria, focusing on international companies rather than those based in Switzerland.The SVVK-ASIR said it would begin engaging with those companies it deemed “critical”.Uelfeti confirmed the organisation was looking for external specialists for screening and engagement activities.The SVVK-ASIR will also be open to larger institutional investors such as retirement providers, compensation funds or insurers.Swiss institutional investors have a tradition of engagement with respect to equity holdings.In 1997, two Pensionskassen founded the shareholder engagement group Ethos, which focuses on engagement with Swiss companies.Ethos has more than 100 members, most being from the private pension fund sector.
“Monetary policies are very much focused on stimulus measures, and the measures used by central banks are highly exceptional,” he said.“Record low interest rates and quantitative easing now support the markets, and, for pension investors, this shows as negative deposit rates.”He concluded: “While it is beneficial for at least one area of economic policy to strive for growth and inflation, nevertheless, economic policy as a whole should be re-examined within the euro-zone.“The European Central Bank’s policy options are all but exhausted, and even now the policy entails major long-term risks.”Meanwhile, returns from Varma’s equity portfolio – 38.3% of its total investments – were -3.1%, compared with 9.6% for Q1 2015, with listed equities returning -5% (11.7% in 2015).Reima Rytsölä, CIO at Varma, said: “January was bleaker than ever in the equity markets, as concerns over China’s economy escalated and the US economy faced headwinds.“The equity markets plummeted, with the Chinese stock exchanges leading the way.”However, Varma dampened the effect by active diversification of its investment portfolio, markedly reducing the weight of equities in favour of fixed income and real estate.Listed equities make up 78.9% of the equity portfolio, but private equity (16.3% of the portfolio) returned 2.5%, slightly less than for Q1 2015.Unlisted equities (4.8% of equities as a whole) were the highest-performing asset class over the entire portfolio, with a 8.2% return, compared with 1.5% in 2015.Varma said that, in addition to unlisted equities, fixed income and real estate were also unaffected by market fluctuations, returning 0.2% and 1.2%, respectively, for the quarter.Fixed income returns were positive because of a decline in the price of corporate bonds, caused by higher pricing of credit risk in the face of a weakening global economic outlook.As of the end of March, the average annual nominal investment return over five years was 4.4%, and, over 10, 4.3%.Turning to the second quarter, Rytsölä was more optimistic about the economic backdrop.“US economic growth seems to be holding, and China’s situation is no longer completely hopeless,” he said.“The recovery of commodity and especially oil prices has helped to balance market sentiment.” Risto Murto, president and chief executive at Finnish pensions insurance company Varma, has called for a re-evaluation of euro-zone economic policy, as the insurer reported an investment return of -1.4% for the first quarter of 2016, compared with 5.3% for the same period in 2015.Varma, whose portfolio stood at €41.1bn at 31 March, blamed the losses on market uncertainty earlier in the year, in response to concerns over the Chinese and US economies.However, Murto also questioned the direction of economic policy within the euro-zone.Since the financial crisis, fiscal policies have focused on balancing public deficits, with responsibility for active economic policy transferred to central banks.
KLP has NOK423m invested in firms involved in the project: Phillips 66, Enbridge, Energy Transfer Partners, and Marathon Petroleum. Campaigners against the pipeline have argued that its current route will be damaging to wildlife and will run through a Native American territory.KLP said the reason it had a practice of proven and public justifications for exclusion was to have as big as possible an effect on companies and make sure its process was always credible and thorough.Bergan added: “Our policy on the exclusion of companies from investments has a high threshold and level of severity for excluding a company.”Meanwhile, Storebrand, which sells pensions, life insurance and savings products in Norway and Sweden, said it would exit positions in Marathon Petroleum, Enbridge, and Phillips 66.Matthew Smith, head of sustainable investments at Storebrand, said: “We have come to the conclusion that active ownership is not going to deliver a better outcome, and after an overall assessment of the situation, we have decided to sell these positions.”The company said there was too much uncertainty for it as an investor as to whether there had been a good process that ensured the rights of all parties in the conflict.Smith said: “Generally, it is our belief that we can have a more positive effect on companies and situations by using our position as an owner to affect change.”The firm had done this successfully many times, but it did not always work, he added.Storebrand said it had been in direct contact with the companies, and had worked with international groups of investors.“Our most recent initiative is an investor letter, representing 137 investors with $653 billion assets under management, that encourages involved banks that have lent money to the project to use their position and influence to engender positive change and a reconsideration the routing of the pipeline,” Smith said.Smith added that the company hoped its divestment would give a final signal to the companies involved in the pipeline to think again about the pipeline’s routing.Last month, Nordic banking and investment group Nordea announced it had decided to divest from companies behind the pipeline project.The London Pension Fund Authority was criticised last month for holdings in companies linked to the Dakota pipeline, but is in the process of selling these as part of an unrelated change of fund manager. Norwegian pension fund Kommunal Landspensjonskasse (KLP) will not divest its shareholdings of companies behind the controversial Dakota Access Pipeline project in the US.In December, KLP – which covers staff at the country’s municipalities – sent its in-house adviser on responsible investments Annie Bersagel to North Dakota to assess the situation on the ground.Jeanett Bergan, head of responsible investment at KLP, said the fund had to be able to document serious or systematic violations of environmental or human rights in order to remove a firm from its portfolio. In the case of the companies behind the US oil pipeline construction, the pension fund had been unable to find such evidence.“Companies involved could clearly have handled indigenous rights in a better way, but it is difficult for us to see that matter as sufficiently grave or systematic,” Bergan said.
“Should this voluntary regime fail to raise standards after a three-year period, or reveal high rates of unacceptable non-compliance, then a mandatory regulatory regime should be introduced,” the committee said.The measures were influenced by the collapse of high street department store BHS, and the subsequent uncertainty regarding the future of its pension scheme. At the end of February, former owner Sir Philip Green agreed a £363m (€424.6m) rescue package for the scheme to keep it out of the Pension Protection Fund.Iain Wright MP, chair of the Business, Energy and Industrial Strategy Committee, said: “The collapse of BHS highlighted the damage that private companies can do. A new code for private companies will help to ensure that high standards of corporate behaviour are observed by our leading firms, improving their public reputation and making them more attractive to investment.”In addition, the committee recommended a “major expansion” of powers for the FRC. It criticised “very weak enforcement mechanisms” and proposed new powers for the FRC to tackle poor practice and improve corporate governance performance.In the summary of its report, the committee said: “While supporting the current ‘comply or explain’ basis of the UK Corporate Governance Code, we propose a series of reforms designed to require directors to take more seriously their duties to comply with the law and the code relating to corporate governance. These include requirements relating to more specific and accurate reporting, better engagement between boards and shareholders, and more accountable non-executive directors.”The FRC welcomed the committee’s report in a statement, adding: “In undertaking its consultation, the FRC will take account of the committee’s recommendations and the government’s response, and assess their implications on the FRC’s remit, resources and funding model.”The FRC is planning a review of the UK Corporate Governance Code later this year. A UK parliamentary committee has called for a voluntary code for large private companies to improve the governance of unlisted firms – including ensuring they pay adequately towards their pension schemes.The Business, Energy, and Industrial Strategy Committee – a group of MPs from the UK parliament’s lower house – published the results of its work on corporate governance this morning.It proposed that the Financial Reporting Council (FRC), Institute of Directors, and Institute for Family Business should develop an “appropriate” voluntary code of conduct for the largest privately owned companies. Initially, this would cover firms with 2,000 employees or more, the MPs said.The committee advocated a “light touch” approach to overseeing the code. Oversight should be given to a dedicated new body, the MPs said. They recommended measures for transparency about pension scheme contributions, revenues, corporate structure, remuneration, number of employees, and directors’ duty to promote the success of the company.
In addition, an increasing focus on fees paid to fund managers has meant investors have moved away from the traditionally expensive fund-of-funds model.In a bid to deal this challenging environment, Preqin said FOHF managers were increasingly looking to consolidate. The period 2009-17, following the global financial crisis, produced a total of 56 mergers or acquisitions, compared to just 13 in the period 2000-08.However, activity over the past two years has slowed, the data company added.Amy Bensted, head of hedge fund products at Preqin, said: “The fund-of-hedge-funds industry faced a series of challenges in the wake of the global financial crisis – a difficult performance environment, changing regulations and a shrinking investor base.“With assets under management in decline, and more funds liquidating than launching, the industry has turned to mergers and acquisitions in order to diversify value proposition as well as building economies of scale.”The report said as industry assets have dwindled, the number of new FOHFs entering the market has also fallen year-on-year, from a peak of 207 in 2007 to just 10 in the first half of 2017.Since 2012, 475 FOHFs launched globally, but 861 liquidated in the same period.However, despite a move to direct hedge fund investing, Preqin noted that almost four out of five of sovereign wealth funds and public pension funds still invested in FOHFs.“The advantages of multi-manager vehicles – to be able to gain exposure to flagship hedge funds and to insulate investors from market shocks – have not diminished,” Bensted said. Assets held by funds-of-hedge-funds (FOHFs) have fallen by a third in less than a decade as investors have pushed more into direct allocations, according to research.Preqin, a data company, found that declining assets over the past decade have led to increased consolidation among FOHF managers as they seek to diversify product offerings to attract more investors, according to a new report.Assets held by FOHFs have fallen from $1.2trn (€1trn) in June 2008 to $798bn in June 2017, Preqin reported, as investors have grown more sophisticated and have withdrawn assets in favour of direct investments.For example, within the UK’s local government pension schemes, some of the newly created asset pools are seeking a direct approach to alternatives and unlisted assets.
Source: SigedisIn other news, Belgium’s larger house of parliament has voted to allow those who work for longer than 45 years to accrue additional pension rights. At the moment, workers can only accrue a maximum of 45 years’ worth of pension rights.The reform will take effect from January and follows through with a recommendation of the Pension Reform Commission 2020-2040, a panel of experts appointed in 2013 by the then government.Bacquelaine said: “Our pension system must encourage the pursuit of professional activity but must also better reward the work done. From now on, all years of actual work will be taken into account in calculating pensions.” The online service was introduced in January 2016. Initially it allowed users to consult their career data and find out when they could claim their pension. Since December 2016 those accruing occupational pension rights have been able to look up the second pillar entitlements they had built up. The equivalent is now possible for the unfunded state pension. Steven Janssen, managing director of Sigedis, which is responsible for the second pillar part of mypension.be, said the evolution of the state pension functionality on the site had encountered issues relating to pre-2016 reform that introduced changes to the state pension age. “It introduced an element of individualisation so there was a fair amount of confusion among the populace,” he told IPE. “As a result it was decided to focus our efforts on the pension age.”Also, changes to how the state pension was calculated were being introduced at the time, so those behind mypension.be decided it was not worth trying to model something that could soon be redundant. Announcing the fresh changes, the Belgian pensions minister Daniel Bacquelaine said: “Until recently, citizens were often unaware of the reality of their pension rights and had to turn to different services depending on their professional status. The implementation of the pension engine has significantly improved a citizen’s digital information about pension rights, regardless of the occupational scheme to which he is affiliated.”He noted that the mypension.be platform had been visited more than 6.7m times as of 20 November. The federal pensions service today announced there had been almost 500,000 unique visits to the website since the changes were announced less than a week ago.What’s the background? The mypension.be website is the outcome of collaboration between several federal pension organisations and Sigedis. Sigedis is a non-profit organisation created in 2006 by the Belgian government to collect declarations from all second pillar pension providers for the purpose of maintaining an occupational pensions database. The database, DB2P, became operational in January 2011. It is the data engine behind the mypension.be portal and other outputs, such as pension institutions’ individual benefit statements and letters to pensioners (see below for a workflow depiction).More than 200 providers declare information to the database. An English-language domain name was chosen to avoid having to register domains in all three of Belgium’s official languages (Flemish, French and German). The Belgian pension portal mypension.be is expanding, the country’s pensions minister has announced.From now on, users will be able to consult the website to find out the estimated amount of their state pension. From March next year they will also be able to use the website to calculate the impact of new rules allowing people to buy back years spent studying to count for their pensionable service.The mypension.be platform will also evolve to allow individuals to check the effect certain career choices would have on their pension. This feature is to become available from 2019.